Ruling against Heinz shows risks in public shift towards health foods

The recent Federal Court decision upholding allegations made by the Australian Competition and Consumer Commission (ACCC) that Heinz’s Little Kids Shredz children’s food range was misleading to consumers because it suggested the high sugar products were nutritious and healthy is a reminder that public focus on what is healthy is both a risk and an opportunity, according to investment analysts.

The Federal Court dismissed one of the ACCC’s arguments, but upheld a second argument, that the packaging on Shredz conveyed the representation that the product was healthy and nutritious. Justice Richard White noted that the representation was “misleading because the sugar content of the product was more than 60 per cent and therefore the product could not be considered beneficial to the health of children aged one to three years,” according to analysis from Allens law firm.

Allens Partner Richard Hamer and Lawyer Eliza Lockhart wrote an analysis for the firm and said the case is the “first shot in what is likely to become a protracted battle to define the edges of acceptable advertising of high-sugar foods.”

“Indeed, Heinz’s Shredz products were brought to the attention of the ACCC through a complaint made by the Obesity Policy Coalition,” Hamer and Lockhart said. “The Coalition is a lobby group comprised of the Cancer Council Victoria, Diabetes Victoria and Deakin University, which seeks to influence food labelling and advertising rules. The Obesity Policy Coalition is on the forefront of the movement to regulate sugar in diets (particularly sugary drinks) and, we suspect, their policies have had a strong influence on the ACCC’s allegations against Heinz.”

While this particular case and decision isn’t enough on its own to move company share prices in Australia, it is an example of the growing public focus on sugar consumption and health.

“I’m not sure if the ACCC is taking a tougher stance on sugar, but because consumers are more aware of the risks of overconsumption of sugar, there’s a better awareness today around sugar content, so therefore companies will do what they can to represent themselves as healthy options, and therein lies the opportunity and the danger,” said Måns Carlsson-Sweeny, head of ESG Research at Ausbil. “Speaking to CEOs or supermarkets in the last two years or so, they’ve realised what a growth opportunity health food is – be it gluten free, low sugar, etc. They don’t want to tell consumers what to eat, but they will provide for it.”

Carlsson-Sweeny compared claims around health to wider terminology around supply chain issues, such as Fair Trade, human rights issues and other impacts.

“If you’re a company and you say, we guarantee that there’s no slavery in our supply chain, that’s also a dangerous claim to make,” he said. “There’s a risk that that will backfire. Health is probably worse in the sense that it’s stuff that people actually eat. People are more prone to act on claims of health or sugar-free that than on labour rights.”

“I wouldn’t be surprised if you don’t see similar cases going forward, because of the temptation of companies to portray themselves as healthy,” Carlsson-Sweeny said.

Nick Edgerton, portfolio manager for sustainable strategies at Stewart Investors, has previously spoken with The Sustainability Report about his firm’s focus on sugar as a material issue for some companies.

“Action by the ACCC joins measures by governments in over 30 countries imposing taxes on sugar so, for investors, sugar continues to be a long-term headwind that isn’t going away,” Edgerton said. “ There are plenty of alternatives in healthy consumer goods that are well positioned to benefit from consumer trends as well as government action.  Examples include Vitasoy, selling plant based milks in Australia, HK and China; Standard Foods selling oats into Taiwan and China, and Marico selling coconut oil throughout Asia.”

Ausbil engages with companies on issues like the risks of growing regulatory trends around sugar, or the opportunities to sell health foods, but Carlsson-Sweeny noted in terms of ASX-listed companies, “it can be difficult to play that theme.”

“However, investors can look at macro trends like the demand in China for infant formula – that’s a big theme, or healthy eating, which also means there are certain companies you might want to avoid,” Carlsson-Sweeny said. “ You try to ascertain what’s true, what’s not true in terms of health claims. At Ausbil, our retail sector analyst is also the healthcare analyst, which helps in terms of analysis.”